Fast Fashion: Quantifying the Benefits

Abstract

For short-life-cycleor fashion industries, the concept of supply f exibility, also known as postponement or “fast fashion,” has high potential for signif cant increases in both profit and market capitalization for brands and retailers. First, we present a model to analyze the benef ts of supply f exibility (in particular, reduced stockouts and markdowns) on operational f nancial metrics: revenue, cost, and prof t. Assuming conservative improvements of 5% of revenue in both reduced markdowns and reduced stockouts from implementing supply f exibility, the resulting estimates of prof t percent increases range from 22 to 28%. Next, the price/earnings ratio for 53 f rms in fast-fashion or short-product-life-cycle busi- nesses is used to estimate the corresponding increase in market capitalization. The results are percentage increases in market cap ranging from 30 to 37%; these increase even further to 35–43% if one anticipates a 15% reduction in inventory levels due to improved supply f exibility.